Mutual Funds

HDFC Growth : Invest

Vidya Bala | Updated on May 07, 2011 Published on May 07, 2011

Risk-return balanced

Investors with moderate return expectations and a limited risk appetite can consider investing in units of HDFC Growth. While the fund's return of 14 per cent, compounded annually over a five-year period, cannot be termed top-notch, the fund is well suited for the volatile times, given its ‘value' approach.

The fund's chequered performance up to 2006 is one reason for its muted long-term performance. Significant improvement in performance, especially over the last two years, makes this fund a good fit in an investor's long-term portfolio.

Strategy: HDFC Growth is suitable for investors looking at stable long-term returns rather than bursts of out-performance. Investors would do well to opt for the systematic investment route to invest in the fund for a period of not less than three years.

SIPs over the last three years in this fund would have yielded an annual return of 24 per cent per annum as against a mere 8.4 per cent return through the lump-sum mode.

Performance: HDFC Growth has comfortably beaten its benchmark by 5-8 percentage points over one-, three- and five-year periods. The fund though, is a late bloomer when it comes to a pick-up, post market correction. In 2009, for instance, high allocation to cash and slow shift to equity prevented the fund from participating fully in the swift rally.

The fund was invested in equities only to the extent of 80 per cent in equities in February 2009 and took six months to ramp up to the 90 per cent level.

This is a rather an unusual quality for an HDFC fund, given that most schemes from this stable remain almost fully invested at all times. The fund appears to have made progress on this count as its exposure to equities was 95-98 per cent in the correction following the peak at end-2010.

HDFC Growth, though, provides ample downside protection to investors during market meltdowns, with a combination of high cash and exposure to defensive sectors.

The fund declined by 48 per cent in 2008, lower than the Sensex fall of 53 per cent.

True to its value approach, the fund has upped its exposure to sectors such as telecom and petroleum products, which offered some value buys, even as it pruned stakes in pharma and media. Stocks with a market capitalisation of less than Rs 7,500 crore accounted for a good 20 per cent of the portfolio as of April.

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